Gold Fields Tumbles as 2016 Targets Depend on South Deep

  • Stock falls as much as 24% as production outlook declines
  • Miner recognizes $300 million of writedowns in fourth quarter

Gold Fields Ltd. fell the most on record after saying production for 2016 will decline and leave the company relying on South Deep, its delayed South African operation, for a greater portion of its bullion.

Production will drop to 2.05 million ounces to 2.1 million ounces in 2016, from 2.16 million last year, the Johannesburg-based company said in a statement Thursday. That includes a 30 percent increase in output from South Deep, which is more than two years behind schedule and is aiming to break even at the end of this year.

“It implies more reliance on next year’s production on South Deep and I don’t think the market is too sure about what South Deep can consistently produce,” Izak van Niekerk, a Cape Town-based analyst at Mergence Investment Managers (Pty) Ltd., said by phone. “Management is promising clearer guidance on that mine in 2017 only.”

Gold Fields tumbled as much as 24 percent, the most since at least February 1985, and was 16 percent lower at 55 rand by 2:26 p.m. in Johannesburg trading. The company swung to a fourth-quarter loss of $54 million compared with a profit of $21 million the previous quarter as it booked $300 million of impairments on investments, tax and operations in Ghana, the Philippines and Australia.

Also weighing on investors were output cuts in Gold Fields’ Australian operations, analysts led by Ben McEwen at CIBC World Markets Corp. wrote in a note. The company is forecasting 905,000 ounces from its Australian assets, compared to CIBC’s expectation of 984,000 ounces.

South Deep

South Deep, the world’s largest gold-ore body behind Grasberg in Indonesia, is a “kingpin" asset for Gold Fields, according to the company’s website, despite almost a decade of delays, accidents and losing money. The mine makes up about 75 percent of Gold Fields’ reserves.

A new mining method and improved management at the mine will raise production 30 percent to 257,000 ounces in 2016, the company said today.

“If we maintain the run rate of quarter four, we’re going to achieve that,” Chief Executive Officer Nick Holland said.

Gold priced in rand is currently trading about 20 percent higher than the company’s estimates, helping South Deep. That means the mine may break even earlier than the end of 2016, Holland said.

“Who knows, we might get there a bit quicker,” he said. “But I’m cautious about what the rand might mean for our costs. In six months’ time it might change.”

Quarterly Output

Gold Fields produced 566,000 ounces of bullion in the quarter, with all-in sustaining costs of $929 an ounce. Production was up 1.6 percent on the previous quarter while costs declined 2 percent.

Gold Fields is seeking to buy in-production assets in countries where it already operates. It paid about $300 million for Barrick Gold Corp.’s Yilgarn assets in Western Australia in 2013, which have generated enough cash to pay for themselves within two years.

“If we buy something, it’s got to add to the quality of the portfolio, it’s got to make us more cash,” Holland said. “Generally, if the deposit is say 10 years, we’d like to get our money back in half that if we could.”

Gold Fields forecasts attributable equivalent production of 2.05 million ounces to 2.1 million ounces for this year, with decreases in production in Australia, Ghana and Peru being offset by a 30 percent advance in South Deep production. All-in sustaining costs are seen at $1,000 to $1,010 an ounce, while capital expenditure will be $602 million.

Map: Gold Fields’ South Deep gold mine west of Johannesburg
Map: Gold Fields’ South Deep gold mine west of Johannesburg
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